Monthly Archives: September 2011

Review: Tinker, Tailor, Soldier, Spy

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What would it be like if a Swede made a classic British spy movie? Well, we found out.

One of the things I liked most about this version of Tinker, Tailor… was that it was a visually convincing portrayal of Britain. The cinema is always in the business of constructing a mythic past or present, and in the UK, there are basically four historical eras in the eyes of the movies. One is Will Shakespeare and before, the age when everything was brown except the crown jewels and the sword blades. Another runs from the deer parks of the 18th century to the 1930s and basically celebrates everything posh. It’s the world of Mary Poppins and a million takes on Jane Eyre. Then there’s Blitz Grim, which runs from the outbreak of war through to the miners’ strike or thereabouts as if the bombs had never stopped falling. And then there’s Shiny World, which picks up in the late Thatcher era and runs through to now.

The problem with this is that the UK is the only European country where the post-war consensus is depicted as looking like shit. I suspect that class is behind this; the people who weren’t rolling in prosperity and unrivalled possibility in those years were exactly the old-fashioned upper middle class that gave us someone like Control as played by John Hurt, a pseudo-academic spook in a studiedly tatty silk near-kimono. He doesn’t dress like that because he’s poor, after all, but because he can. Smiley and his colleagues are much the same, marinating in cod-Oxbridge shabby-library kitsch in chilly flats in Hampstead, plunging into Highgate Ponds, dressing in expensive-but-fashionless tailoring.

But Tomas Alfredson shows early 1970s London as a city with tatty look-and-feel but fleets of brand-new cars (hey! it was the golden era of the British sports car! nobody feels existentially crushed by decline and runs out to buy a MGB roadster!), ruled by a government with uncared-for buildings but a more than generous budget for the technology of spookery and bureaucracy. This suggests he may have read a book or two before starting out. In fact, the intelligence world’s budget is nothing as to Alfredson’s budget for sets – the enormous, hugely detailed archives and secure conference centre are amazingly impressive, and permit him to put the audience in the point of view of a highly classified file making its way through the system.

Of course, London is always like that. There is a long history of new arrivals writing about the noise! and the smog! and the prices! and how do they live like that! and then, in their next letter home, declaring that all their friends had better hurry up as it might not last. These days, Smiley might have moved his skunk-works mole hunt into a Regus serviced-office block in Shoreditch rather than a rotten railway hotel around the old Broad Street station. The paranoia would have to float through the air conditioning in the spirit of J.G. Ballard rather than give the walls uncanny life in that of M.R. James. But it wouldn’t be all that different.

Neither would the politics, in some ways. One reading of the plot is that the loyal British spies and the pro-Soviet moles are in a sort of unconscious conspiracy. The original scheme is to get information from a Hungarian defector that will induce the Americans to share more intelligence with the British. But the moles, who are deliberately providing the British with information to get them to keep the defector case running, also hope that the Americans will be impressed enough to share, so they can get their hands on whatever they do share. After all, the British are deliberately passing information back to the Hungarians to protect the agent’s cover. In what way, then, are their aims actually opposed? The distinction between loyalty and betrayal is a question of the terms-of-trade.

Interestingly, we now know that while John Le Carré/David Cornwell was writing the book, the whole issue had blown up and the Americans had cut off signals intelligence sharing with the UK over prime minister Edward Heath’s refusal to let SR71 reconnaissance flights over the battles of the Yom Kippur war land at the British base in Cyprus. Specifically, Heath and his foreign minister Alec Douglas-Home were concerned that the Americans would pass the information to the Israelis, forcing the UK to take sides in the conflict. The Americans refused to give this assurance and the landing rights were refused, and the US flew the missions anyway using dozens of air-to-air refuelling tankers. As it happened, the Israelis weren’t being entirely honest with the Americans in exchange for the use of the photos, and the Americans were severely embarrassed, leading them to patch up the row with the UK quickly once it was all over.

So the British and the Russians (including the Hungarians) are willing to go to any lengths in order to influence the Americans. The other big target is of course the British Government, specifically the Treasury and SIS’s parent ministry, the Foreign Office. Ironically, the moles are as keen as the loyal to fight the good bureaucratic fight, and both sides want to do so by scoring off the Americans. If anything they mistrust the mainline civil service even more than they do Karla. There is a brilliant moment when the suspected mole, Alleline, spits at a senior civil servant that “None of your civil servants lost their lives!” – in Britain, the intelligence and diplomatic services are technically “crown servants”, without the independent professional status or final access to the highest peaks of power reserved for the civil service proper.

There are other things that haven’t changed much. Gary Oldman’s diction was so perfectly establishmentarian that I missed the first reference to what sounded like “Pseare” but was of course SERE, the survival, evasion, resistance to interrogation, and escape training course that Donald Rumsfeld’s agents re-purposed to create a wholesale torture capability after 2001.

Some other points…who didn’t love the government minister, very much the motorway-building go-ahead bulldozer of the Heathite Tory imagination, who plays a vigorous bout of squash in his Fred Perrys and immediately afterwards sparks up a gasper? It was also hard to avoid thinking that it was the Cold War that made Britain European, a time of civil service linguists and the BBC World Service. And finally, this is a slow movie, as slow as paranoia, well likened to the Godfather. Time stacks up, thickens, intensifies.

Revisiting the Eurodebate

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This post of P O’Neill’s made me think of something. That is, the British debate on joining the Euro, and on Europe more generally. I was strongly pro-Euro, something which now looks as bad a decision as joining the Liberal Democrats was. It’s hard to avoid the conclusion that had the UK had Eurozone interest rates in the 2000s, we would have had an even huger housing bubble and even more gigantic bank balance sheets, and we would have had to resolve them without being able to use the central bank as lender of last resort, and we would have been unable to devalue the currency as a stimulus mechanism.

Any counter-argument requires that the influence of the Bank of England in ECB policy would have been both powerful and right. The first is debatable, but we have to accept that the Bank didn’t restrain the housing bubble and also failed to respond to the crisis in the real economy in 2008, sitting on its hands and mumbling about inflation while the labour market cliff-dived and the bank regulators across the corridor frantically juggled with Halifax-Bank of Scotland, Lloyds, and Northern Rock. Also, the early 2000s situation of a bubbly periphery and a stagnant core would have been even worse with the London housing market in the Euro, and it’s hard to say how that would have panned out.

But what were we really debating in the 90s?

The arguments in favour, at least the economic ones, were that we might benefit from being fully integrated in a bigger trading bloc, that we would benefit from currency stability, that lower interest rates would be nice to have, and that the Eurozone restrictions would be a force that would require industry to be more competitive (or did they just mean lower wages?). The arguments against, at least the economic ones, were that the Stability & Growth Pact would be an anti-Keynesian force for deflation and that the option of devaluation would be removed.

Then there was a whole lot of other stuff. A lot of the “for” side thought it would make us more European and meant by this that it would make us more social-democratic (or Christian-Democratic, or even Free Democratic), although I don’t think any of them could have articulated a mechanism by which this would happen. I suspect that for a lot of us it was a bit like the Estonian MP who told Tim Garton Ash that “Europa ist…nicht Rußland!”, or in our case, Europe was not-America.

A lot of the “against” side seemed to agree with the idea that joining the Euro meant the triumph of social democracy, because they at least claimed to think that the European Union was an inherently socialist institution. Some of them still think this now, when it has imposed structural adjustment on three European countries in order to avoid the nightmare of fiscal expansion in Germany. Others took the Friedmanite line that currency adjustment was a form of free market competition and therefore desirable. This was at least defensible. And others thought that it was a scheme to redraw the UK’s internal borders or replace the flag or something.

The interesting contradiction here was that the same people who worried that we would be unable to devalue the currency were also fervent austerians who didn’t believe in demand management of any kind. It was as if they believed in hardcore new classicism up to the point where it affected their re-election. How could it happen?

Obviously, whether you felt the SAGP would be useful discipline or an anti-Keynesian straitjacket simply depended on whether you expected the economic problem of the 2000s to be inflation or deflation. But the economic argument that was very rarely discussed was the one that is now fascinating everybody – exactly how the Eurosystem, rather than the Euro, would function in a financial crisis. Apparently this was discussed in specialist circles, but it didn’t make even the best of the national press.

To sum up, I agree that the yes side was wrong about fixing the currency. To be honest, when asked, I always said I was in favour of joining if we could join at a significantly lower exchange rate. The benefits of which Jaguar-Land Rover just demonstrated. But this is a cop-out on my part. On the other hand, I think the Eurosceptics and some of the conservative Europhiles should accept that they were wrong about the SAGP – yes, Virginia, inflation was a phantom menace, and the ghosts of 1929 were not finished with us. And we can all agree that we were all wrong about the banking and financial aspects of the Eurosystem, in that we didn’t even bother to argue about them.

I promised to blame somebody in the last post. Here it comes: the key European politicians, especially the French and the Germans and the European Commission officials, who designed the Euro and the Eurosystem. They created a system that had a structural deflationary bias in an era of deflation, one that delivered rock-bottom interest rates to countries in the grip of land fever, and one that couldn’t cope with a banking crisis although it included the biggest banking system in the world. And then they kept putting up interest rates. What’s worse is that they now have the gall to give lectures about virtuous savers – even when they are the same individuals, like Wolfgang Schäuble, who were in power in the 1990s.

Yes, the banks are to blame

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Daniel Davies’s effort to become the most popular man in Britain has, apparently, not developed to his advantage, to quote the Emperor Hirohito. It struck me that there are two opposed explanations for the unusual toxicity of the comments thread that ensued, and they tell us quite a lot about the Great Bubble and the Great Recession that followed.

The first would be Daniel’s explanation. Look at them! It took only six comments for someone to analogise him to a soldier whose commander pays him in whiskey and cigarettes to cut the ears off prisoners, and sixty-five for someone to compare him to one of the anonymous organisers of the Holocaust. We got to Josef Stalin by comment 115 and to Megan McArdle by 108. Surely, this is evidence that there is an unreasoning and unproductive rage around at anything that smacks of banks, bankers, or banking.

The second would be mine. Fans of Daniel Davies’s work since the distant era of Adequacy.org will appreciate that he is a practised and expert troll, and distinguished among the guild of ancient Norwegian bridge-guardians by the fact he can turn it on and off as desired. Knowing that bankers are unpopular (were they ever popular?), and that Crooked Timber is a website full of left-wing people, he crafted a post that would cause them all to freak out amusingly.

You will of course notice that the basic distinction here is that one explanation is demand-driven and one supply-driven. The first assigns agency to the buyer, the second to the seller. The distinction is important in economics – one of the most standard assumptions is that consumer sovereignty holds and that firms are generally price-takers. Another key assumption is that industry fundamentally responds to demand. Electrical engineers would say that it is load-following, like a power plant whose output can be throttled up or down to respond to the needs of the grid.

In itself, this isn’t controversial. Industries produce what they can sell. There are lags in the supply-chain, and it’s possible to have temporary shortages or surpluses, but basically, the rate of production is both constrained and driven by demand. But the stronger form of this argument, and the one that is baked into essentially all economic models, is that not just the quantity of goods, but also their quality and kind, is demand driven. The distinction between drivers and constraints is important here. It is obvious, and trivial, to say that things nobody will buy won’t be produced for very long. But that is only half the argument.

How did we decide to try making fireguards out of chocolate, or self-certifying mortgages with negative-amortising interest rates, in the first place? Obviously, there are cases where new products do respond to an identifiable demand. At the level of the whole economy, though, this implies that every conceivable product or service already exists in latent form in the minds of customers, as if there was a statue in every block of stone waiting to get out. This is…somehow implausible and unsatisfying. Among other things, it has the curious consequence that being really true to the core assumptions of economics implies eliminating the role of the entrepreneur, at least as an inventor or product designer rather than as an operational manager.

If entrepreneurs are a thing, on the other hand, we have to accept the possibility that firms have agency in structuring the markets they sell into, that even if aggregate supply doesn’t create its own aggregate demand, it is possible for specific supply to create its own specific demand. It’s Milan fashion week, after all – an institution exquisitely dedicated to the proposition that producers can at least try to define what consumers will want.

Now, back to the mortgage market. Mortgage brokers are a fine example of a business that really is demand-driven. People come to them and say how much house they are trying to buy, and the broker tries to find someone who will lend them the money. As they were both in competition as firms, and usually rewarded on commission as individual workers, their structural incentives were to follow the housing market wherever it went. In that sense, property buyers had real agency and hence culpability. The broker/originator sector was also meant to evaluate their creditworthiness, but as it didn’t take the risk on the loans itself, it didn’t have any incentive to turn people down. It had agency, and therefore also blame.

But what about the banks? Just treating them as a normal business is illuminating. Businesses invent new products all the time – sometimes following demand, sometimes reaching ahead of it. Sometimes, what they invent is dangerous to the public and they have to be restrained. Nobody would argue, for example, that in inventing the RBMK nuclear reactor, the Soviet nuclear industry wasn’t berserkly irresponsible and directly to blame when one blew up.

And one product the banks surely did invent was outsourced mortgage-servicing. This practice may yet prove to be one of the most pernicious of the Great Bubble, not because it led to illegality as such (although there’s plenty of that), but because it is a major obstacle to recovery, and it is the more profitable the longer it stays that way. When lenders were responsible for collecting payments and dealing with borrowers themselves, they were much more likely to be reasonable with borrowers who struggled to keep up the payments. They had good economic reasons for this; typically, they would recover much more of their money in a negotiated settlement than in a foreclosure, an expensive process in itself that usually ends with the property going for auction at a fire-sale price.

But once the servicing function is outsourced, the incentives are actually reversed. Not only does the servicer, the party who has direct contact with the borrower, have no incentive to agree a modification of the original loan, they have every reason to insist on foreclosure. They get paid based on the tasks they carry out, and foreclosure generates a lot of lawyering and letters, all of them chargeable to the lender.

Now, there are three ways out of a balance-sheet recession. One is economic growth itself. As, I recall, Daniel Davies once said, if you are in debt as an individual, the best solution of all is to increase your income if it is at all possible. And the Kulmhof-Ranciere study argues that increasing real wages is the best way out of the crisis at the macro-level. Another is inflation. And the point has been made, by one Daniel Davies among others, that inflation is a rather simple mechanism to adjust all sorts of contracts that were set at nominal prices that have become unpayable, one which avoids all the complex machinery of courts and loan officers.

And a third is bankruptcy, in which we recognise by law the fact that both the lender and the borrower agreed on a contract that has become impossible to honour, and both of them share in the cost of cramming it down to a realistic level. Here is a case in which a major new product invented by the financial sector, in advance of demand, is directly blocking one of the three roads to economic recovery. To what extent the banks are responsible for the lack of progress on the other two is left as a topic for discussion.

In my next post, I’m going to look at some more people who are to blame. They are not Greek schoolteachers.

International Talk Like a Berlin Parliamentarian Day

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With further proof that a five-party system is much more fun for analysts than for candidates or for governance, city-state elections in Berlin put out the previous coalition, returned the personally well-liked mayor, decimated a party that was a long-time kingmaker in West Germany, and put members of the Pirate Party into a German state legislature for the first time. Just in time for pirates’ international holiday.

Klaus “und das ist auch gut so” Wowereit (Social Democrat, SPD) will continue to serve as Mayor of Berlin, a post he has held since June 2001. The Free Democrats, who played a crucial role in the three-party system of West Germany, appear to have polled less than 2% in this election. In 2006 they won more than 7% of the vote and gained 12 seats; they will have none in the coming parliament.

The Left Party, post-communists and often prominent in Berlin, lost four seats and can no longer serve as a junior coalition partner to the Social Democrats. The Greens thought they might win the mayoralty, after gaining their first state premiership earlier this year in Baden-Württemburg. Though they gained 4.5% and six seats, they will at best be a junior coalition partner. The SPD may also choose to govern with the Christian Democrats (CDU). In the past, this would have been called a grand coalition, but with the second-place CDU polling just 5% more than the third-place Greens (and indeed none of the parties pulling in more than 30% of the vote), it’s hardly a sweeping coalition. Look for a Red-Green government, but with the SPD clearly in the driver’s seat because it has other options.

And then there are the Pirates. Their success in this election is, first, a reminder of electoral volatility at the state level. Anyone remember the Schill Party? Second, it’s a sign that the Greens have a generational problem. Post-materialist voters have tended to be Green voters, but the issues that drew people to the Greens 25 and 30 years ago aren’t as salient now. I’d like to see some polling on how many Pirate voters are first-time voters; I’m willing to bet it’s a high percentage. Third, it may be a signal that the FDP is well and truly toast in Berlin. The kind of discourse about freedom that the Pirates have embraced is something that the FDP could have taken up, but has proven too hidebound to do. Fourth, the Berlin tech-computer scene is engaged, experienced and has both a long history and a deep bench. The city is the home of the Chaos Computer Club and the first location for Blinkenlights, among many other highlights. There’s a big natural constituency for the Pirates, and they turned out. Fifth, digital issues and a diffuse sense of protest can motivate nearly 10% of an urban electorate. That’s enough to tip some more elections. Arrrr.

like loyal, faithful dogs

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I don’t find it particularly surprising that some of the people freed by police after allegedly being kept as slaves at a travellers site say that they wanted to be there. For one, thing, that doesn’t tell you anything about what would have happened if they had tried to leave and been caught.

And there are a whole number of reasons why people picked up from soup kitchens and homeless shelters being kept as slaves might have found their situation preferable to the one they were in before. They had regular accommodation, no matter how squalid. They were wanted, if only for forced labour. As the local MP pointed out, they will have worked out there where everybody could see the condition they were in – and nobody apparently thought that worth remarking on. They had a reliable, if reliably inadequate, food. Perhaps some of them were made into pets, or even given a kind of kapo status. They had regular company. Above all, people can be treated much worse than they were allegedly treated and still behave like loyal, faithful dogs. Rebelling against your condition, as the people who escaped and complained to the police did, is entirely natural. So is accepting it. Neither acts determine what your actual condition was in the first place.

And it should hardly be so surprising that people accept the idea they have to work in order to receive the means of basic sustenance when this notion forms a large part of government policy on unemployment.

surplus to political requirements

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p>Our American comrades will be familiar with this kind of thing:

As many as 10 million voters, predominantly poor, young or black, and more liable to vote Labour, could fall off the electoral register under government plans, the Electoral Commission, electoral administrators and psephologists warned .

The changes will pave the way for a further review of constituency boundaries that will reduce the number of safe Labour seats before the 2020 election.

It's a two stage thing. First shift voting registrations from households to individuals and remove the legal obligation to report. Then measure constituencies by individual registrations rather than numbers eligible to vote, thus cutting down the number of urban constituencies, and therefore Labour constituencies. And the man driving this through is Mr Fair Votes himself, Nick Clegg.

It should be said that if core Labour voters are demotivated then that has a lot to do with the Labour Party: the numbers voting between 1997 and 2001 dropped by around 13%, I think. This is where new Labour's they've got nowhere else to go attitude to their voters eventually got them. many went anyway, and now we have a rightwing government trying to systematically discourage them from coming back.

I'm also not at all sure that if this goes through that it won't rebound on the Tories, who have their own secular decline in voters to worry about. Party loyalties are so generally attenuated these days that it makes no sense for any government to discourage voting.

Maggie Thatcher, Hard ECUs, and the Eurozone shambles

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House of Commons, 30 October 1990 –

Mr. Terence Higgins (Worthing)  Will my right hon. Friend [the PM, Mrs Thatcher] take time between now and the conference in December to explain to her European colleagues what any first-year economic student could tell them, which is that the imposition of a single currency, as opposed to a common currency, would rule out for all time the most effective means of adjusting for national differences in costs and prices? Will she explain that that in turn would cause widespread unemployment, which would probably exist on a perpetual basis, and very serious financial imbalances?

The Prime Minister Yes, I agree entirely with my right hon. Friend. It would do just that. It would also mean that there would have to be enormous transfers of money from one country to another. It would cost us a great deal of money. One reason why some of the poorer countries want it is that they would get those big transfers of money. We are trying to contest that. If we have a single currency or a locked currency, the differences come out substantially in unemployment or vast movements of people from one country to another. Many people who talk about a single currency have never considered its full implications.

But wait, there’s more.

Continue reading →

Why you shouldn’t trust the WSJ piece on BNP Paribas

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The Wall Street Journal Europe has published this morning a market-moving opinion piece claiming to reveal serious funding troubles at French bank BNP Paribas. The article opens with an alleged quote from a BNP executive:

We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore. Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.

On the face of it, the quote didn’t seem that outlandish: the major French banks have a significant amount of the bad kind of European sovereign debt in their books, have not written off the potential losses quite as extensively as others have done and thus stand to suffer dearly in case of a Greek default. You could also argue that French banks haven’t always been 100% straightforward in their defense. And it’s not like hints of a dollar funding problem at a European bank haven’t surfaced in the past weeks.

Still, there are many reasons to be extremely skeptical of the article. Continue reading →

the man on the Clapham omnibus says bring death from the sky

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Micah Zenko on the burgeoning US assassination programme. Here's the halfway point:

However, in mid-2008, President Bush authorized a vast expansion in the scope and intensity of the use of drones in Pakistan. Since then, there have been an additional 250 strikes. As David Sanger reported, Bush lowered the threshold for an attack to what one anonymous U.S. official described as the "reasonable man" standard: "If it seemed reasonable, you could hit it."

I'm not returning to the good old days of Bush bashing here. We've now reached the stage where people whose names are not known can be assassinated on the grounds that their "life patterns" as interpreted by targeters provide "operational support" to organisations that the US has decided are terrorist, and on the grounds that their deaths will "minimize threats to allies and partner states." Widely interpreted – and the trend is clearly towards wide interpretation – those parameters could end up including a lot of reasonable men.

life in a low trust society

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I missed this when it came out a week ago. Have yourselves a cheerful read:

On the morning of Sept. 4, in the riverside boomtown of Wuhan, Mr. Li, an 88-year-old man, fell in the street and injured his nose. People passed him by, but no one raised a hand to help as he lay on the ground, suffocating on his own blood.

This week, China’s netizens have expressed an outpouring of sympathy – for the bystanders. This is nothing new here. In recent years, there have been several high-profile cases of elderly men and women who have collapsed or suffered accidents in public spaces who then sue the good Samaritans who have tried to help them. These cases have created a genuine and widespread fear that helping a person in need will lead to personal financial loss.

The proximate cause of this is a court ruling back in 2006 which found the fact that someone helped an old lady in distress was evidence that he caused that distress in the first place. But there's maybe more to it than that. More good commentary here.